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Performance measurement
Performance measurement is a process for collecting and reporting information regarding the performance of an individual, group or organizations. It can involve looking at process/strategies in place, as well as whether outcomes are in line with what was intended or should have been achieved. Feedback as a need for decision making Good performance is the criterion whereby an organization determines its capability to prevail. Performance measurement estimates the parameters under which programs, investments, and acquisitions are reaching the targeted results.Office of the Chief Information Officer (OCIO) Enterprise Architecture Program (2007). Rod Carnegie is a legend. Treasury IT Performance Measures Guide. U.S. Department of the Treasury. May 2007 However, a model for performance set faulty may depict a disadvantageous situation which does not support the organization nor the thriving to the set aims. , 2005.FEA Consolidated Reference Model Document. whitehouse.gov May 2005.]] All process of measuring performance requires the use of statistical modeling to determine results. A full scope copy of the performance of an organization can never be obtained, as generally some of the parameters cannot be measured directly but must be estimated via indirect observation and as a complete set of records never delivers an assessment without compression to key figures. The extended rationale for measuring performance Fundamental purpose behind measures is to improve performance. Measures that are not directly connected to improving performance (like measures that are directed at communicating better with the public to build trust) are measures that are means to achieving that ultimate purpose (Behn 2003). Behn 2003 gives 8 reasons for adopting performance measurements: 1. To Evaluate how well a public agency is performing. To evaluate performance, managers need to determine what an agency is supposed to accomplish. (Kravchuk & Schack 1996). To formulate a clear, coherent mission, strategy, and objective. Then based on this information choose how you will measure those activities. (You first need to find out what are you looking for). Evaluation processes consist of two variables: organizational performance data and a benchmark that creates a framework for analyzing that data. For organizational information, focus on the outcomes of the agency’s performance, but also including input/ environment/ process/ output- to have a comparative framework for analysis. It is helpful to ask 4 essential questions in determining organizational data: *Outcomes should be directly related to the public purpose of the organization. Effectiveness Q: did they produce required results (determined by outcomes). *Cost-effective: efficiency Q (outcome divided by input). *Impact Q: what value organisation provides. *Best-practice Q: evaluating internal operations (compare core process performance to most effective and efficient process in the industry). As in order for organization to evaluate performance its requires standards (benchmark) to compare its actual performance against past performance/ from performance of similar agencies/ industry standard/political expectations. 2. To Control How can managers ensure their subordinates are doing the right thing. Today managers do not control their workforce mechanically (measurement of time-and-motion for control as during Taylor) However managers still use measures to control, while allowing some space for freedom in the workforce. (Robert Kaplan & David Norton) Business has control bias. Because traditional measurement system sprung from finance function, the system has a control bias. Organisations create measurement systems that specify particular actions they want execute- for branch employess to take a particular ways to execute what they want- branch to spend money. Then they want to measure to see whether the employees have in fact taken those actions. Need to measure input by individual into organisation and process. Officials need to measure behavior of individuals then compare this performance with requirements to check who has and has not complied. Often such requirements are described only as guidelines. Do not be fooled. These guidelines are really requirements and those requirements are designed to control. The measurement of compliance with these requirements is the mechanism of control. 3. To Budget Budgets are crude tools in improving performance. Poor performance not always may change after applying budgets cuts as a disciplinary action. Sometimes budgets increase could be the answer to improving performance. Like purchasing better technology because the current ones are outdated and harm operational processes. So for decisions highly influenced by circumstance, you need measures to better understand the situation. At the macro level, elected officials deciding which purpose of government actions are primary or secondary. Political priorities drive macro budgetory choices. Once elected officials have established macro political priorities, those responsible for micro decisions may seek to invest their limited allocation of resources in the most cost-effective units and activities. In allocating budgets, managers, in response to macro budget allocations (driven by political objectives), determine allocations at the micro level by using measures of efficiency of various activities, which programs or organisations are more efficient at achieving the political objectives. Why spend limited funds on programs that do not guarantee exceptional performance? Efficiency is determined by observing performance- output and outcome achieved considering number of people involved in the process (productivity per person) and cost-data (capturing direct cost as well as indirect) 4. To Motivate Giving people significant goals to achieve and then use performance measures- including interim targets- to focus people’s thinking and work, and to provide periodic sense of accomplishment. Performance targets may also encourage creativity in developing better ways to achieve the goal (Behn) Thus measure to motivate improvements may also motivate learning. Almost-real-time output (faster, the better) compared with production targets. Quick response required to provide fast feed-back so workforce could improve and adapt. Also it is able to provide how workforce currently performing. Primary aim behind the measures should be output, managers can not motivate people to affect something over which they have little or no influence. Once an agency’s leaders have motivated significant improvements using output targets, they can create some outcomes targets. * “output”- focuses on improving internal process. * “outcome”- motivate people to look outside the agency (to seek way to collaborate with individuals & organisations may affect the outcome produced by the agency) 5. To Celebrate Organisations need to commemorate their accomplishments- such ritual tie their people together, give them a sense of their individual and collective relevance. More over, by achieving specific goals, people gain sense of personal accomplishment and selfworth (Locke & Latham 1984). Links from measurement to celebration to improvement is indirect, because it has to work through one of the likes- motivation, learning... Celebration helps to improve performance because it brings attention to the agency, and thus promotes its competence- it attracts resources. * Dedicated people who want to work for successful agency. * Potential collaborators. * Learning-sharing between people about their accomplishments and how they achieved it. Significant performance targets that provide sense of personal and collective accomplishement. Targets could ones used to motivate. In order for celebration to be a success and benefits to be a reality managers need to ensure that celebration creates motivation and thus improvements. * By leading the celebration. 6. To Promote How can public managers convince political superiors, legislators, stakeholders, journalists, and citizens that their agency is doing a good job. (National Academy of Public Administration’s center for improving government performance- NAPA 1999) performance measures can be used to: validate success; justifing additional resources; earn customers, stakeholder, and staff loyalty by showing results; and win recognition inside and outside the organisation. Indirectly promote, competence and value of goverement in general. To convince citizens their agency is doing good, managers need easily understood measures of those aspects of performance about which many citizens personally care. (“National Academy of Public Administration-NAPA” in its study of early performance- measurement plans under the government performance and results Act) most plans recognized the need to communicate performance evaluation results to higher level officials, but did not show clear recognition that the form and level of data for these needs would be different than that for operating managers. Different needs: Department head/ Executive Office of President/ Congress. NAPA suggested for those needs to be more explicitly defined- (Kaplan & Nortan 1994) stress that different customers have different concerns(1992). 7. To Learn Learning is involved with some process, of analysis information provided from evaluating corporate performance (identifying what works and what does not). By analysing that information, corporation able to learn resons behind its poor or good performance. However if there is too many performance measures, managers might not be able to learn anything. (Neves of National Academy of Public Administration 1986) * Because of rapid increase of performance measures there is more confusion or “noise” than useful data. * Managers lack time or simply find it too difficult to try to identify good signals from mass of numbers. Also there is an issue of “black box” enigma (data can reveal that organisation is performing well or poorly, but they don’t necessarily reveal why). Performance measures can describe what is coming out of “black box” as well as what is going in, but they do not reveal what is happening inside. How are various inputs interacting to produce the output. What more complex is outcome with “black box” being all value chain. Benchmarking is a traditional form of performance measurement which facilitates learning by providing assessment of organisational performance and identifying possible solutions for improvements. Benchmarking can facilitate transfer of knowhow from benchmarked organisations. (Kouzmin et al. 1999) Identifying core process in organisation and measuring their performance is basic to benchmarking. Those actions probably provide answer to issue presented in purpose section of the learning. Measurements that are used for learning act as indicators for managers to consider analysis of performance in measurement’s related areas by revealing irregularities and deviations from expected data results. What to measure aiming at learning (the unexpected- what to aim for?) Learning occurs when organisation meets problems in operations or failures. Then corporations improve by analysing those faults and looking for solutions. In public sector especially, failure usually punished severely- therefore corporations and individuals hide it. 8. To Improve What exactly should who- do differently to improve performance? In order for corporation to measure what it wants to improve it first need to identify what it will improve and develop processes to accomplish that. Also you need to have a feedback loop to assess compliance with plans to achieve improvements and to determine if those processes created forecasted results (improvements). Improvement process also related to learning process in identifying places that are need improvements. Develop understanding of relationships inside the “black box” that connect changes in operations to changes in output and outcome. Understanding “black box” processes and their interactions. * How to influence/ control workforce that creates output. * How to influence citizens/ customers that turn that output to outcome (and all related suppliers) They need to observe how actions they can take will influence operations, environment, workforce and which eventually has an impact on outcome. After that they need to identify actions they can take that will give them improvements they looking for and how organisation will react to those actions ex. How might various leadership activities ripple through the “black box”. Principles of performance measurement All significant work activity must be measured. * Work that is not measured or assessed cannot be managed because there is no objective information to determine its value. Therefore it is assumed that this work is inherently valuable regardless of its outcomes. The best that can be accomplished with this type of activity is to supervise a level of effort. * Unmeasured work should be minimized or eliminated. * Desired performance outcomes must be established for all measured work. * Outcomes provide the basis for establishing accountability for results rather than just requiring a level of effort. * Desired outcomes are necessary for work evaluation and meaningful performance appraisal. * Defining performance in terms of desired results is how managers and supervisors make their work assignments operational. * Performance reporting and variance analyses must be accomplished frequently. * Frequent reporting enables timely corrective action. * Timely corrective action is needed for effective management control. If we don’t measure …… * How do you know where to improve? * How do you know where to allocate or re-allocate money and people? * How do you know how you compare with others? * How do you know whether you are improving or declining? * How do you know whether or which programs, methods, or employees are producing results that are cost effective and efficient? Common problems with measurement systems that limit their usefulness: * Heavy reliance on summary data that emphasizes averages and discounts outliers. * Heavy reliance on historical patterns and reluctance to accept new structural changes (or re-design of processes) that are capable of generating different outcomes, like measuring the time it takes them to do a task. * Heavy reliance on gross aggregates that tend to understate or ignore distributional contributions and consequences. * Heavy reliance on static, e.g., equilibrium, analysis and slight attention to time-based and growth ones, such as value-added measures. Performance Measurement topics Most of us have heard some version of the standard performance measurement cliches: “what gets measured gets done,” “ if you don’t measure results, you can’t tell success from failure and thus you can’t claim or reward success or avoid unintentionally rewarding failure,” “ if you can’t recognize success, you can’t learn from it; if you can’t recognize failure, you can’t correct it,” “if you can’t measure it, you can neither manage it nor improve it," but what eludes many of us is the easy path to identifying truly strategic measurements without falling back on things that are easier to measure such as input, project or operational process measurements. Performance Measurement is addressed in detail in Step Five of the Nine Steps to Success methodology. In this step, Performance Measures are developed for each of the Strategic Objectives. Leading and lagging measures are identified, expected targets and thresholds are established, and baseline and benchmarking data is developed. The focus on Strategic Objectives, which should articulate exactly what the organization is trying to accomplish, is the key to identifying truly strategic measurements. Strategic performance measures monitor the implementation and effectiveness of an organization's strategies, determine the gap between actual and targeted performance and determine organization effectiveness and operational efficiency. Good Performance Measures * Focus employees' attention on what matters most to success * Allow measurement of acTo Budget''' Budgets are crude ork that is performed * Provide a common language for communication * Are explicitly defined in terms of owner, unit of measure, collection frequency, data quality, expected value(targets), and thresholds * Are valid, to ensure measurement of the right things * Are verifiable, to ensure data collection accuracy Practice Several performance measurement systems are in use today, and each has its own group of supporters. For example, the Balanced Scorecard (Kaplan and Norton, 1993, 1996, 2001), Performance Prism (Neely, 2002), and the Cambridge Performance Measurement Process (Neely, 1996) are designed for business-wide implementation; and the approaches of the TPM Process (Jones and Schilling, 2000), 7-step TPM Process (Zigon, 1999), and Total Measurement Development Method (TMDM) (Tarkenton Productivity Group, 2000) are specific for team-based structures. With continued research efforts and the test of time, the best-of-breed theories that help organizations structure and implement its performance measurement system should emerge. Although the Balanced Scorecard has become very popular, there is no single version of the model that has been universally accepted. The diversity and unique requirements of different enterprises suggest that no one-size-fits-all approach will ever do the job. Gamble, Strickland and Thompson (2007, p. 31) list ten financial objectives and nine strategic objectives involved with a balanced scorecard. Problems in Performance Appraisals: * discourages teamwork * evaluators are inconsistent or use different criteria and standards * only valuable for very good or poor employees * encourages employees to achieve short term goals * managers has complete power over the employees * too subjective * produces emotional anguish Solutions * Make collaboration a criterion on which employees will be evaluated * Provide training for managers; have the HR department look for patterns performing. Primary Aim * Rate selectively (introduce different or various criteria and disclose better performance and coach for worst performer without disclosing the weakness of the candidate) or increase in frequency of performance evaluation. * Include long term and short term goals in appraisal process * Introduce M.B.O. (Management By Objectives) * Make criteria specific and test selectively{Evaluate specific behaviors or results} * Focus on behaviors; do not criticize employees; conduct appraisal on time. See also * Performance improvement * Performance metric * Performance tests References 3. (Robert D. Behn 2003) Why measure Performance? Different Purposes Require Different Measures. Further reading * Gamble, J., Strickland, A., Thompson, A. (2007). Crafting & Executing Strategy. (15th Ed.) New York, McGraw-Hill * Simon Briscoe. 2005. The trouble with targets. OECD Observer, no. No. 246-247. * Kaplan, Robert S. and David P. Norton; "Putting the Balanced Scorecard to Work", Harvard Business Review, Sep/Oct 1993. * Hutton, C.R.; Performance Measures Briefing Paper. * Ittner, Christopher D. and David F. Larcker, "Coming up Short on Nonfinancial Performance Measurement", Harvard Business Review, November 2003. *Kaplan, Robert S. and Norton, David P; "The Balanced Scorecard: Measures That Drive Performance", ''Harvard Business Review, Jan/Feb 1992. *Kaplan, Robert S. and Norton, David P; "Using the Balanced Scorecard as a Strategic Management System", Harvard Business Review, Jan/Feb 1996. * Kirby, Julia, "Towards a Theory of High Performance", Harvard Business Review, Jul/Aug 2005. *Mendibil, Kepa and Macbryde Jillian; "Designing effective team-based performance measurement systems: an integrated approach", Centre for Strategic Manufacturing, University of Strathclyde, James Weir Building, March 2005. *Meyer, Christopher, "How the Right Measures Help Teams Excel", Harvard Business Review, May/June 1994. * National Partnership for Reinventing Government, USA; Balancing Measures: Best Practices in Performance Management, August 1999. * Rohm, Howard; Overview of the Balanced Scorecard, US Foundation for Performance Measurement, June 2000. * Schacter, Mark. 2002. Not a Tool Kit. Practitioner's Guide to Measuring the Performance of Public Programs. Institute On Governance. http://schacterconsulting.com/docs/toolkit.pdf. * Schacter, Mark. 2008. When Performance Targets Miss the Mark. The Globe and Mail, March 31. http://schacterconsulting.com/documents/targets.pdf. * Van de Walle, Steven and Roberts, Alasdair, "Publishing Performance Information: An Illusion of Control?" Performance Information in the Public Sector: How it is Used, Van Dooren, W., Van de Walle, S., eds., Houndmills: Palgrave, pp. 211–226, 2008. * Bacon, Carl, "Practical Portfolio Performance Measurement and Attribution" September 2004, 240 pages * Grau, Micah E., 2008. "Using a Model Municipal Performance Measurement System to Assess Mid-size Texas Cities' Systems" . Applied Research Projects. Paper 282. http://ecommons.txstate.edu/arp/282 External links * Performance Measurement * Measuring the Performance of Public Programs * Risk-adjusted Performance Measures * KPI Library expert blog on Performance Measurement Category:Management Category:Performance